Department Adjusting The Refund Amount Under Amnesty Scheme Without Notice Violates Principles of Natural Justice: Bombay High Court

The Bombay High Court has held that the action of the department in making the adjustment of a refund due to the petitioner while considering the application under the Amnesty Scheme without notice to the petitioner is in utter disregard of the well-established principles of natural justice and has caused grave prejudice to the petitioner.

The bench of Justice Nitin Jamdar and Justice Abhay Ahuja has observed that the Statement of Objects and Reasons for Introducing the Amnesty Scheme clearly records that a large number of cases and litigation are pending in respect of the repealed laws pursuant to the introduction of the GST Act, locking in a substantial amount of tax. Therefore, the government considered it expedient to provide a scheme for the settlement of arrears of tax, interest, penalty, or late fee for the period ending on or before June 30, 2017, so that the settlement of such disputes would safeguard the revenue and also settle the arrears of tax.

The petitioner/assessee is a limited company engaged in procuring vehicles from Tata Motors Limited (TML) and selling them to dealers within and outside the State of Maharashtra. The petitioner was formerly known as "TML Distribution Limited". Pursuant to an order passed by the NCLT, Mumbai Bench, all assets and liabilities of TML Distribution Company Limited have been transferred from the transferor company (TML Distribution Company Limited) to the transferee company (TML Business Services Limited).

The petitioner was registered under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) and the Central Sales Tax Act, 1956 (CST Act).

The Assessing Officer passed an Assessment Order, raising a demand of Rs. 17,76,93,422, including tax and interest. The petitioner filed an appeal, which resulted in a reduced demand of Rs. 14,00,74,890.

On March 6, 2019, the Government of Maharashtra issued an ordinance called the Maharashtra Settlement of Arrears of Tax, Interest, Penalty, or Late Fee Ordinance, 2019 (Amnesty Scheme) providing for the settlement of arrears of tax, interest, penalty, and late fee as of April 1, 2019, upon payment of a part.

On May 13, 2019, the petitioner made an application under the Amnesty Scheme for the financial year 2010–2011 for settlement of dues by making a payment of Rs. 8,46,84,821, which was acknowledged by the department.

A Refund Adjustment Order was received by the erstwhile petitioner informing them that the refund of Rs. 10,69,89,606 that was due to them would be adjusted towards the amount of tax due for the year 2010–2011. The defect notice and the refund adjustment order appear to have been issued by the same officer, viz., the Deputy Commissioner of State Tax.

The petitioner contended that it was not open to the respondents to adjust the refund of Rs. 10,69,89,606 against the liability of Rs. 14,00,74,890 for the year 2010–2011. Since the erstwhile petitioner had already made an application to settle the dues for the year 2010–2011 in accordance with the provisions of the ordinance. The action of the respondents has denied the petitioner the refund of Rs. 10,69,89,606. The department has, in fact, arrived at the amount of Rs. 3,30,85,284 due for the year 2010–2011 after adjusting the refund for the year 2011–2012 and has thereafter claimed that only an amount of Rs. 66,17,057 is due under the Amnesty Scheme. The amount paid by the erstwhile petitioner under the said scheme is Rs. 8,46,84,821 after the calculations by the respondents under the scheme.

The court noted that the defect notice and the refund adjustment order are separated only by a day, and this could not have provided sufficient opportunity for the petitioner to even seek redress for his grievance from the department.

The court set aside the defect notice and the refund adjustment order remanded the matter back to the respondent authorities, and directed the respondent authorities to consider the refund application after giving an opportunity for a hearing and after considering the submissions of the petitioner, pass a reasoned order within a period of six weeks.

Case Title: TML Business Services Limited Versus The Deputy Commissioner of State Tax

Citation: 2023 LiveLaw (Bom) 249

Case No.: Writ Petition No. 8343 Of 2019

Date: 04/05/2023

Counsel For Petitioner: R. A. Dada

Counsel For Respondent: S. D. Vyas

Click Here To Read The Order